This article is written by Kimaya Anavkar, a T.Y.LL.B. student at Kishinchand chellaram Law College.
Keywords: Arbitration, Litigation, Alternative Dispute Resolution (ADR), Arbitration Clause, Arbitral Award, Arbitration and Conciliation Act 1996
ABSTRACT: In the world of business, disputes are inevitable. But is a long, public courtroom battle the only solution? This article explores Arbitration, a powerful form of Alternative Dispute Resolution (ADR). We compare Arbitration vs. Litigation, highlighting why many businesses prefer arbitration for its speed, confidentiality, and finality. We will break down the entire process, starting from the all-important ‘Arbitration Clause’ in a contract to the delivery of a final ‘Arbitral Award’. This guide provides a practical look at how arbitration works in India, including the limited grounds for challenging an award under the Arbitration and Conciliation Act, 1996. This article is a simple guide for anyone looking to understand this efficient and private path to justice.
INTRODUCTION: WHAT IS ARBITRATION?
When you think of a legal dispute, you probably picture a courtroom, judges, and a public trial. But what if there was another way? A private, more flexible, and often faster way? Welcome to the world of arbitration.
In simple terms, arbitration is a private legal process where two or more parties agree to have their dispute decided by a neutral third party, known as an “arbitrator” (or a panel of arbitrators). Think of the arbitrator as a private judge whom both sides have chosen.
Unlike mediation (where a neutral party helps you agree), an arbitrator makes a binding decision. This decision is called an “arbitral award,” and it has the same legal force as a court judgment.
THE GATEWAY: THE ARBITRATION AGREEMENT
You can’t just decide to go to arbitration one day; it’s a path you must have agreed to before the dispute (or sometimes after it arises). The ticket to this private process is the “arbitration agreement” or, more commonly, the “arbitration clause” found within a contract.
This clause is a specific paragraph where both parties state that if any future disagreements arise from the contract, they will resolve them through arbitration instead of going to court. For this clause to be valid, it must be in writing and clearly show that both parties intended to settle their disputes through arbitration. It is arguably one of the most powerful and important clauses in any commercial contract.
ARBITRATION VS. LITIGATION: A HEAD-TO-HEAD COMPARISON
Why would a business choose arbitration over the traditional court system (litigation)? As a law student, I’m constantly studying the pros and cons. Here’s a simple comparison:
| Feature | Litigation (Traditional Court) | Arbitration (Private Process) |
| Speed | Can take many years due to court backlogs and extensive procedures. | Generally much faster, often concluding in months. |
| Confidentiality | Public. All hearings, documents, and judgments are part of the public record. | Completely private. The proceedings and the final award are confidential. |
| Cost | Court fees are low, but lawyer fees over a long period can be massive. | Can have higher upfront costs (you must pay the arbitrator’s fees), but it saves on long-term litigation costs and business disruption. |
| Finality | Judgments can be appealed through multiple levels of courts (e.g., from High Court to Supreme Court). | The arbitral “award” is final and binding. As we’ll see, the grounds to appeal (or “challenge”) it are extremely limited. |
| Expertise | The case is assigned to a judge who may not be an expert in your specific industry (e.g., maritime law, software development). | The parties can choose an arbitrator who is a recognized expert in their field, ensuring a more informed decision. |
THE PROCESS IN BRIEF: FROM NOTICE TO AWARD
While the specifics can change based on the agreement, the basic arbitration process is straightforward:
- Appointing the Arbitrator: When a dispute arises, one party sends a “notice of arbitration” to the other. They must then agree on a neutral arbitrator. If they can’t agree, the contract often names an institution (like the Mumbai Centre for International Arbitration) or a court to appoint one for them.
- Submitting Claims: Both sides submit their written claims, defenses, and supporting documents to the arbitrator.
- Hearings: This is the “trial” part, but it’s much more flexible. Hearings can be held in a conference room, online, or even just through written documents. The strict rules of evidence found in courts are often relaxed.
- The “Award”: After considering all the evidence, the arbitrator issues a final, written, and binding decision—the “arbitral award.” This award resolves the dispute, and the winning party can take it to a court for enforcement, just like a regular court judgment.
CAN YOU CHALLENGE AN ARBITRAL AWARD?
This is a key legal point. In litigation, you can appeal a decision if you think the judge was wrong on a point of law or fact. In arbitration, “finality” is the rule.
You cannot appeal an arbitral award just because you disagree with the arbitrator’s conclusion.
Under India’s Arbitration and Conciliation Act, 1996, you can only ask a court to “set aside” an award on very limited grounds. These include:
- Proof of fraud or corruption by the arbitrator.
- The arbitrator was biased.
- The party was not given a fair chance to present their case.
- The award conflicts with the “public policy of India.”
This last point (“public policy”) used to be interpreted very broadly, but the Supreme Court of India, in cases like BCCI v. Kochi Cricket (P) Ltd., has reinforced that courts should not interfere with an award’s merits. The bar for challenging an award is, and is intended to be, very high.
CONCLUSION: THE FUTURE OF COMMERCIAL DISPUTE RESOLUTION
Courtroom battles will always have their place, but for the modern business world, time is money and privacy is paramount. Arbitration offers an efficient, expert-led, and confidential alternative to traditional litigation. By understanding the power of an arbitration clause and the finality of an arbitral award, businesses can take control of their disputes. As the Indian legal system continues to promote Alternative Dispute Resolution (ADR), arbitration stands out as the default choice for savvy businesses seeking “private justice.”
FREQUENTLY ASKED QUESTIONS (FAQS)
1. What happens if I sign a contract with an arbitration clause and then try to sue in court?
The other party will show the court the arbitration clause. Under Section 8 of the Arbitration and Conciliation Act, 1996, the court is required to dismiss your case and refer you to arbitration, as that is the process you contractually agreed to.
2. Is arbitration only for big companies?
Not at all. While it’s famous in large commercial disputes, arbitration can be used to resolve all kinds of disputes, including landlord-tenant issues, employment disagreements, and more, as long as both parties agreed to it in writing.
3. What’s the difference between arbitration and mediation?
This is a common confusion. A mediator is a facilitator who helps two parties talk and reach their own settlement. A mediator has no power to make a decision. An arbitrator is a decision-maker. They listen to both sides and issue a final, binding decision (the award) that ends the dispute.
References
- The Arbitration and Conciliation Act, 1996
- Board of Control for Cricket in India v. Kochi Cricket (P) Ltd. (2018) 14 SCC 665
